I briefly presented the current ruling of the Munich Regional Labor Court on losses on company pensions (4 Sa 1152/06, appeal admitted) here last week. If it were to be upheld on appeal, I think the financial consequences would be almost impossible to foresee. Today writes in addition in a guest contribution attorney Dr. Johannes Fiala, whose Kanzlei in Munich represented the plaintiff (woman employee). Double salary costs due to company pension scheme? The case: Employee loses around 90% of his company pension Anna M. (name changed) had asked her employer to invest part of her salary in a company pension scheme on her behalf (deferred compensation). After 6,230 euros had been transferred to a “company pension scheme” by the employer within three years, the employment relationship ended. The company pension scheme reported that 639 euros of “her converted salary” were still there – the rest had been used for costs (e.g. commissions). The employer was ordered by the Munich Regional Labor Court to pay the employee the missing 90% (again) as wages. For the employer, however, this “experience with financial sales” will be even more expensive due to levies, because social insurance will still be due, which can no longer be charged retroactively to the employee after three months. The employer saw a 20% tax advantage in the company pension scheme – he had not been advised about the risk of paying 120% and more on balance in the end. Ubiquitous Zillmerung: Unconstitutional cost burden With the capital life insurance the mediator receives a commission as part of the conclusion costs. In the century before last, the actuary August Zillmer introduced a method according to which these acquisition costs had to be paid by the customer through the premiums in the first few years. Therefore the so-called value in the first years was “zero” – and this is not only “an investor damage” (Prof. Dr. Michael Adams, Univ. Cologne) but simply unconstitutional (Federal Constitutional Court, decision of 15.02.2006, Az. 1 BvR 1317/96). New judgement: Employer in the liability case The new decision of the regional labor court Munich (judgement of 15.03.2007, Az. 4 Sa 1152106) concerns each implementation way of the operational old age pension (direct insurance, pension promise, pension fund, pension fund, back-covered support fund). If the sum of the contributions paid in is not available at all times, the employer is liable for the loss of earnings in the case of deferred compensation. The agreements with the employees and the sponsor of the company pension scheme are simply invalid – therefore a double reversal is possible. Employment law beats insurance law In the insurance contract, a good half of the premiums can legally be calculated for acquisition costs in the first few years – under employment law, this is impossible because of the employer’s duty of care regardless of fault and the requirement of equal value. Employer liability cannot be eliminated by “employee education.” Employees can, at the latest when they leave the company, sue the employer for payment of a missing value difference. Works councils can appoint an economic reorganisation committee. Collective agreements also contain void provisions in this respect. The only way for employers to find out whether they are among the probably over 90% affected is to talk to an independent actuary. Reasons for timely reorganisation In the case of deferred compensation, the employer has the role of a “disinterested trustee” (OLG Düsseldorf, judgement of 06.03.1992), i.e. the duty to choose a favourable offer in the interest of the employees. Increasing employer liability over time may suggest a balance sheet adjustment. Some pension funds do not shy away from reassuring employers with untruths through in-house lawyers: Employers are kept in the dark by the vast majority of pension funds about the often negative return on investment and the consequences of liability, especially in the first 10-20 years: Employees’ liability claims become time-barred after 30 years. Employers often only have 3 years from knowledge to get their money back in full.
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About the author
Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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